It started out as a few people refusing to repay student loans in protest of alleged predatory lending by for-profit Corinthian Colleges. But the “debt strike” has turned into a movement of over 100 students who may now have a real chance of getting the government to forgive their loans.
On Tuesday, the strikers met with senior officials from the Consumer Financial Protection Bureau, Education Department and Treasury Department to discuss having their loans discharged under a federal statute to protect college students from fraud.
The strikers are among 400 former Corinthian students to have filed what’s known as defense to repayment claims, an appeal to the Education Department to forgive their federal loans on the grounds that Corinthian broke the law. The department has broad authority to cancel loans when colleges close or commit fraud against students.
“What these Corinthian students have experienced is troubling,” said Denise Horn, a spokeswoman for the Education Department. “We will review every claim to borrower’s defense and continue to investigate Corinthian to help students as much as possible.” Horn said she could not provide a timeline for the review.
Corinthian, which until recently ran Everest Institute, Wyotech and Heald College, has become the poster child for the worst practices in the for-profit education sector. Problems at the California-based company came to light four years ago in a Government Accountability Office report that identified Corinthian as one of 15 for-profit colleges where recruiters encouraged students to commit fraud on financial aid applications.
Evidence of misconduct at Corinthian continued to surface through litigation and state probes. Yet the government continued to provide $1.4 billion in financial aid to the company every year as tens of thousands of students enrolled in programs that often required them to take on five-figure debt.
An ongoing CFPB lawsuit against Corinthian accused the company of steering students into private loans, known as “Genesis loans,” that had interest rates as high as 15 percent. The agency said that Corinthian set its tuition and fees for bachelor’s degrees at $60,000 to $75,000 to force students to borrow from the program and that company then received a slice of the lender’s fees.
Corinthian disputes the allegations. The company has said that fewer than 40 percent of its students took out Genesis loans and that the average interest rate was 9 percent, similar to other private student loans. Corinthian maintains that it fixed any problems that were brought to its attention.
But former student Tasha Courtright said she remembers the day a financial aid officer at Everest Ontario in California pulled her out of class to warn her that she would have to drop out of school if she didn’t take out a Genesis loan.
“They told me that I was no longer eligible for the grant that was supposed to cover my tuition, but I was already a year into the program, so I wasn’t going to leave,” said Courtright, who graduated in 2012 with $41,000 in loans.”I’d never been to college. I figured these people are regulated by the government, so they’re not lying to me.”
Allegations of predatory lending, deceptive marketing and lying to the government about its graduation rates ultimately led to Corinthian’s downfall. The Education Department withheld federal funds from Corinthian last summer, forcing the company to sell or close its schools.
In November, ECMC Group, which runs one of the biggest debt collectors used by the Education Department and has had not experience running schools, paid $24 million for more than half of Corinthian’s 107 campuses. The department gave the deal its blessing, much to the dismay of consumer advocates who said the schools should have all closed. That way, advocates said, students would have a clear cut case to have their student loans discharged.
But the law is still on the students’ side, said Luke Herrine, an organizer from Debt Collective, an offshoot of Occupy Wall Street that’s working with the strikers.
“I think they are taking this seriously,” he said. Education officials “were much more responsive than I thought they would be…although they didn’t want to talk about things that we did not like that they’re doing, like selling the schools to ECMC and not contacting students as a part of their investigation.”
At the meeting Tuesday, strikers presented Undersecretary Ted Mitchell, the third-highest ranking official at the department, a proposal calling for the government to erase all outstanding debt for current and former Corinthian students and refund them the money they’ve already paid on the loans.
Granting the discharges could mean the loss of billions of dollars in taxpayer money and set a precedent for future requests for loan forgiveness. But some lawyers say that state and federal lawsuits against Corinthian present strong evidence that strengthens the strikers’ cases.
“The idea behind this type of defense is not these students shouldn’t have to pay the debts they incurred going to school,” said Adam Minsky, an attorney specializing in student debt. “It’s that the school engaged in abusive practices and should have never been eligible to receive aid to begin with because of these practices. And the students now are the ones left with the bill.”
Horn confirmed that Mitchell agreed Tuesday to respond to the strikers’ proposal within 30 days. She said the department has taken “a series of actions in recent months to hold Corinthian accountable.” The department, she noted, has worked with ECMC to forgive many of the private loans in Corinthian’s Genesis program.
Students will see an immediate 40 percent reduction in the principal balances on their loans, with the remainder forgiven over the next few years. But that’s just the private loans. Students who took out federal loans are still on the hook.
Lawmakers have come to the defense of Corinthian students. Sen. Elizabeth Warren (D-Mass) and other Senate Democrats wrote Education Secretary Arne Duncan in December, urging him to at least discharge some of the loans on the grounds that Corinthian broke the law and “failed to hold up their end of the bargain”–the same argument the protesters are making.